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Is the taxpayer entitled to a deduction under either section 8-1 or section 12-5 of the Income Tax Assessment Act 1997 (ITAA 1997) or a capital loss under Division 104 of the ITAA 1997 for an annual payment to a former spouse made under a court order upon the dissolution of a marriage?

No. The taxpayer is not entitled to a deduction under either section 8-1 or 12-5 of the ITAA 1997 or to a capital loss under Division 104 of the ITAA 1997 for the amount of the annual payment.

The taxpayer was granted a divorce subject to provisions of the Minutes of a Court Order. The taxpayer is required to pay the former spouse a sum of money by annual instalments.

The instalments will be funded from the income of the taxpayer's business.

Paragraph 8-1(a) of the ITAA 1997 provides that the amount of any loss or outgoing can be deducted from assessable income provided that: • it is incurred in gaining or producing assessable income; or • it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

Subsection 8-1(2) of the ITAA 1997 however does not allow a loss or outgoing to the extent that it is of capital, or of a capital nature or of a private or domestic nature.

The taxpayer incurred the expenditure neither in gaining or producing assessable income nor in carrying on a business. The payment is of a private or domestic nature.

Section 12-5 of the ITAA 1997 does not contain any specific provision that allows a deduction for an amount paid in these circumstances.

Division 104 of the ITAA 1997 contains all the CGT events that can give rise to a capital gain or loss. The facts mentioned do not lead to the operation of any of these CGT events and there is no capital loss available in these circumstances.